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I want some feedback on a recent decision I made to avoid capital gains.

My taxable portfolio has about $13,000 realized gains for the year. If you count unrealized returns, my actual performance for the year shows I'm down about the same amount. I'm not happy about paying my marginal rate on these gains at the end of the year given such lackluster performance.

I recently took a hit with Sycamore SCMR (small investment) that tanked right after I bought it. SAnk about 50%. I still like the sector for long term growth, and there are other companies in my portfolio which I feel have been excessively corrected in the past two months. So I sold Sycamore for a loss and reinvested most of the proceeds in JDSU, another company in the sector that I like. My belief is that the optical sector will perform equally better over the near long term.

So, have I achieved my goal of avoiding taxes on gains while benefiting in the growth of this sector? Foolish or wise?
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<<I want some feedback on a recent decision I made to avoid capital gains.>>

I never hesitate in giving my opinion. :-)

<<My taxable portfolio has about $13,000 realized gains for the year. If you count unrealized returns, my actual performance for the year shows I'm down about the same amount. I'm not happy about paying my marginal rate on these gains at the end of the year given such lackluster performance.>>

Since you use the term "marginal rate" I can only assume that you are talking about short term realized gains. As you are likely aware, long term gains are taxed at a preferred tax rate. So my first opinion is to try and invest for the long term, realize long term gains whenever possible, and reap the benefit of the preferred tax rate.

<<I recently took a hit with Sycamore SCMR (small investment) that tanked right after I bought it. SAnk about 50%. I still like the sector for long term growth, and there are other companies in my portfolio which I feel have been excessively corrected in the past two months. So I sold Sycamore for a loss and reinvested most of the proceeds in JDSU, another company in the sector that I like. My belief is that the optical sector will perform equally better over the near long term.>>

Ok...

<<So, have I achieved my goal of avoiding taxes on gains while benefiting in the growth of this sector? Foolish or wise?>>

Makes sense to me...at least from a tax standpoint. I don't know if SCMR and JDSU, while in the same sector, will perform similarly over the short or long term. Just being in the "righ" sector doensn't mean that you're invested in the right stock. If JDSU outperforms SCMR, then you've certainly made the right decision. But if JDSU goes south for some reason, while SCMR screams north, being in the "right" sector will be cold comfort at best.

But, as you note, you have certainly accomplished your tax goals.

TMF Taxes
Roy
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